The best cost reduction or process improvement strategy starts with clinical strategy, and clinical strategy should start with an analytics-first approach. Cost per case (CPC)—a familiar key performance indicator—is one of the best ways of comparing clinical variation between physicians, procedures, and cases.

CPC captures several aspects of each case so that by building out this measure, hospitals can mine for clinical variation, develop robust reporting, and establish a pipeline for cost reduction or process improvement opportunities through clinical standardization. What’s more, supply chain professionals can promote change proactively by using a data-centric approach for determining clinical variation.

The calculation for CPC can be adjusted to fit each hospital’s goals, but in most instances it makes sense to focus on variable costs. Fixed costs are generally spread out over all cases and typically have no bearing on clinical variation.

Data

Most finance systems and electronic medical records (EMRs) allow users to extract case-level data, including supply costs and radiology, laboratory, and medication data. Collecting data at the most granular level possible is invaluable to the ability of supply chain professionals to defend their position in conversations with physicians about clinical variation.

Some level of data cleansing and review will always be necessary. Usually, this is the most time-intensive part of the analysis. Common issues include the following:

The EMR cost information is inaccurate

Some item use is not captured in the EMR (which may indicate an issue with charges or item master maintenance)

Some items are not updated in the EMR

Unit of measure information is inaccurate (which may skew cost data)

Reports

Once robust data cleansing and review have been performed, then detailed reports can be created. It is important to work with leadership and clinicians to establish outlier thresholds and exceptions to results included in these reports, as some cases will likely need to be managed differently.

When your final data set is established, an initial CPC analysis should compare the following:

Diagnosis Related Group (DRG) or procedure

Physician

Combined DRG or procedure and physician

Depending on your hospital’s size, complexity, and goals, other factors can be incorporated. Some facilities include revenue, quality factors, and volume. One of the core Cost, Quality, and Outcomes (CQO) principles, evaluating quality and outcomes along with cost is vital, as cost by itself is only one aspect of a complex equation.

Opportunities

Mining for variation and using it to identify cost reduction and performance improvement opportunities requires the collaboration of both clinical and supply chain staff. If the data is carefully presented, high-level cost variations between physicians and procedures can be identified easily. A variation in cost indicates that there is a difference in clinical practice, whether it arises from the use of additional or different products, tests (lab or radiology), or medications—and this can prove to be useful information for promoting standardization.

Since reports are developed from case-level detail, it is possible to create drill-down comparisons between specific cases for specific physicians. This level of detail is important for conversations that can lead to standardization opportunities. Sharing CPC information with physicians can be used to open discussions of standardized protocols, clinical best practices, and cost control.

Having worked with numerous hospitals, I have seen firsthand a variety of examples of clinical variation caused by situations other than clinical choice. In all of the instances below, a CPC analysis was performed to identify the issue.

At a multi-facility health system, a surgeon used different supplies for the same procedure at each facility simply because each facility stocked different supplies.

At an academic medical center, a surgeon used only large-sized bone morphogenic protein (BMP), while other surgeons were able to use appropriately sized BMP.

At a community hospital, a reprocessing program was implemented; however, one shift had poor compliance, due to a lack of training.

Ultimately, taking a broad view is essential to identifying these issues. Cost per case is a valuable measure because it captures multiple data points. As reports are developed and used, CPC can prove a powerful tool for finding cost reduction and process improvement opportunities—and that can impact your hospital’s bottom line.

Addendum to ACHE’s Congress: Leading Plans into Action Last month, I had the opportunity to give a presentation at the ACHE 2016 Congress on Leadership. This event brings together healthcare executives from across the country to discuss what it means to be a leader, how we can improve in our respective r...